- 19 -
* [S. Rept. 1983, 85th Cong., 2d Sess. (1958), 1958-3
C.B. 922, 1141; emphasis added.]
Respondent determined that the loans Mr. Oren made to HL and
HS did not involve an economic outlay by petitioners and did not
increase basis under section 1366(d). Respondent argues that the
transactions did not leave petitioners “poorer in any material
sense” and did not result in “any significant change” in
petitioners’ “economic wealth”.10
Petitioners suggest that the loans from Mr. Oren to HL and
HS, when viewed separately, were bona fide debts for purposes of
section 1366(d). Petitioners contend that the “other” loan
transactions (i.e., the loans from HL to Dart and from HS to
Dart) should not upset the validity of those loans. Petitioners
also argue that Mr. Oren’s personal economic wealth was changed
significantly as a result of the loan transactions since he was
personally indebted to Dart for repayment of the loan proceeds.
In the context of a shareholder’s guaranty of a loan for the
benefit of an S corporation, there has been some dispute as to
whether a guaranty can ever satisfy the requirements of section
1366(d)(1). Most of the cases dealing with the issue have
determined that, as a matter of law, a mere guaranty does not
give rise to basis in indebtedness under section 1366(d)(1)(B),
10Respondent does not challenge the bona fides of the
entities created by petitioners or the overall structure of the
trucking business adopted by petitioners.
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011